PATH ACT

The most recent layer of lipstick came in the form of a 233 page document named “Protecting Americans from Tax Hikes Act of 2015.” Arriving the week before Christmas 2015, in a manner that has become all too routine over the last eight years, it has the appearance of being a last-minute ditch effort at throwing something at a wall.

When one throws something at a wall, there is always the inherent hope that some of it will stick. Well in this particular case, I can tell you that only 16.5% of this is going to stick. How do I know this? I’ve actually read it and only 19 of the 115 provisions were permanent, everything else was temporary, extensions or delays.

Over the last 30 years I’ve had many occasions to tell someone that I cannot provide “retroactive tax planning” , meaning the person sought my advice on a transaction with tax consequences that occurred in the prior year.

Once the calendar clicks over to January 1st, the best I can do is explain the tax treatment. Oh sure, if there is a better way to structure a transaction I can share that with them for future reference, in case they have a similar event arise.

Tax planning is difficult when the Congress sends a tax bill for the President’s signature on December 18th and the provisions are retroactive to January 1st of that same year!

Those of you that follow me on Facebook know that my father had his pacemaker replaced earlier this year. In fact, just 4 days ago I took him and mom to Birmingham for a 6 month follow-up with his cardiovascular doctor to ensure the device is working properly. I am very pleased that all was good, but that is what reminded me of the Medical Device Tax Provision in the PATH ACT of 2015 and prompted this article.

The Medical Device Tax

The Affordable Care Act included a new excise tax on medical devices.

What is a Taxable Medical Device?
Taxable medical devices were defined in The Affordable Care Act as any device “intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease in man or other animals, or intended to affect the structure or function of the body of man.” For instance, the tax would be levied on devices such as dad’s pacemaker.

There has been a lot of confusion and misrepresentations spread through rumors about this subject. I’ve written about this before while addressing different provisions of The Affordable Care Act, but want to reiterate that this tax has what is called a retail exemption. A provision that exempted goods from the excise tax that are commonly purchased directly by the general public and not through their insurance at the hospital for individual use.

As part of the PATH Act, the medical device tax will be delayed for two years, until 2018. Many refer to this as simply kicking the can down the road. Since that phrase was coined by a movement, I prefer the lipstick analogy.

Now you know that instead of reading magazines while waiting in the doctor’s office lobby for 3 hours, my mind always seems to drift to tax topics. After 30 years I think it has become a permanent habit of mine.